The Office of Fair Trading may be venturing into Alice in Wonderland territory with its recently-announced review of competition in the fuel market.

It’s looking into a world where low prices and big investments in customer facilities can turn out to be a bad thing. A world where they say small is beautiful – but it often isn’t viable.

And it’s a place where the cheapest fuel outlets could conceivably be told to put their fuel prices up to make the market fairer. Is that really what we want?

Still, having successfully admonished the supermarkets for fixing the price of milk and cheese, the OFT seems to be ready to go another round with them over the price of petrol.

Its review will look at three common complaints by independent fuel retailers.

Firstly, that the majors take too long to pass reductions in the price of oil on to consumers. Secondly, that the supermarkets sell fuel too cheaply in order to steal business from small outlets. And thirdly that drivers and outlets in rural areas are suffering.

The first one will be tough for the OTF to sort out. It can take months for a barrel of oil to find its way from the well head to a petrol pump. During that time half a dozen agents – the producer, the world’s oil traders, Ben Bernanke (via the effects of QE 1-3 on the value of the dollar), the refiner, the wholesaler and the retailer – all take a turn at pricing it.

To show wrongdoing, the regulators will not only have to unpick the timeline of those price-change points. They will also have to find evidence that the big fuel retailers colluded over delays to price cuts.

As for the supermarkets, they are clearly a force to be reckoned with – especially if you are a small independent fuel outlet.

Although the Big Four only own around 10% of fuel outlets, they command a substantial proportion of all petrol and diesel sold in the UK.

But how much of a case can one make out of the fact that they sell a lot of fuel on wafer-thin margins?

They also shift 85% of all groceries bought in the UK but no one, as far as I recall, has ever seriously suggested that they should put up their bread prices to create a level playing field for corner shops.

Thirdly, remote areas clearly have growing problems with the price and availability of road fuels but it’s debatable whether they can be blamed on anti-competitive behaviour.

Supplying fuel to outlying parts is expensive – as is supplying everything else.

It seems that the OFT is really being asked to report on what place – if any – there is for small fuel retailers in a declining fuel market.

Because, even when road fuel sales were growing by leaps and bounds, hundreds of small outlets used to close every year: 30,000 of them since 1960.

But the volume of fuel consumed in the UK is already 10% smaller than in 2007. And it will go on falling as fleets and consumers drive for greater fuel efficiency and productivity from their vehicles.

Scale and location are becoming critical criteria for forecourt owners. Witness last week’s opening of Britain’s biggest fuel outlet, on the M25. With 141 pumps, it can service 3,400 vehicles a day – seven times more than the average forecourt.

That is the looking glass world of road fuels for you. Higher prices, lower volumes, bigger outlets, less choice. The OFT has its work cut out.

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